Exam 12: Return, Risk, and the Security Market Line

A portfolio consists of two stocks and has a beta of 1.07.The first stock has a beta of 1.48 and comprises 38 percent of the portfolio.What is the beta of the second stock?

Which one of the following is the best example of a risk associated with stock ownership?

A risky security has a variance of .036190 and a covariance with the market of .0222.The variance of the market is .01975.What is the correlation of the risky security to the market?

Of the following,Stock _____ has the greatest level of total risk and Stock _____ has the highest risk premium.

The risk-free rate is 4.1 percent,the market rate is 13.2 percent,and the expected return on a stock is 15.84 percent.What is the beta of the stock?

Brooke invested $4,500 in the stock market with the expectation of earning 6.25 percent.She actually earned 7.15 percent for the year.What is the amount of her unexpected return?

Home Interior's stock has an expected return of 13.2 percent and a beta of 1.28.The market return is 10.7 percent and the risk-free rate is 2.8 percent.This stock is _____ because the CAPM return for the stock is _____ percent.

The stock of Healthy Eating,Inc.,has a beta of .88.The risk-free rate is 3.8 percent and the market return is 9.6 percent.What is the expected return on Healthy Eating's stock?

Which one of the following qualifies as diversifiable risk?

You own a portfolio which is invested equally in two stocks and a risk-free security.The stock betas are .89 for Stock A and 1.26 for Stock B.Which one of the following will increase the portfolio beta,all else constant?

The common stock of Blasco Books has a standard deviation of 16.4 percent as compared to the market standard deviation of 12.7 percent.The covariance of this stock with the market is .0217.What is the beta of Blasco Books' stock?

Which one of the following must be equal for two individual securities with differing betas if those securities are correctly priced according to the capital asset pricing model?

What is the beta of a portfolio which consists of the following?

A risky asset has a beta of 1.40 and an expected return of 17.6 percent.What is the risk-free rate if the risk-to-reward ratio is 8.4 percent?

Where will a security plot in relation to the security market line (SML)if it has a beta of 1.1 and is overvalued?

Alfonso Rodriquez has served as the president of Imports United for the past six years.During his tenure,the company has grown significantly and provided above-average returns to its shareholders.Thus,Mr.Rodriquez is highly admired.Yesterday,he announced that he will be retiring at the end of this quarter.You expected the stock price of Imports United to decline on this news because of the admiration investors have for this gentleman.Contrary to your expectations,the price of the stock remained unchanged.There was no other relevant market news related to this firm and the overall market also remained relatively unchanged for the day.What explanation can be given for the market not reacting as you expected to Mr.Rodriquez's announcement?

Which of the following will affect the beta value of an individual security? I.interval of time frequency used for the data sample II.length of the time period used for the data sample III.particular time period selected for the sampling IV.choice of index used as the measure of the market

Where will a security plot in relation to the security market line (SML)if it is considered to be a good purchase because it is underpriced?

Reed Plastics just announced the earnings per share for the quarter just ended were $.45 a share.Analysts were expecting $.51.What is the amount of the surprise portion of the announcement?

A portfolio consists of one risky asset and one risk-free asset.The risky asset has an expected return of 11.2 percent and a beta of 1.39.The risk-free asset has an expected return of 3.4 percent.How much of the portfolio is invested in the risk-free asset if the portfolio beta is 1.07?